Question

Compare different types of taxes (lump-sum tax, income tax, sales tax, per-unit tax, etc.) in terms of their impact on the efficiency with regards to the second welfare theorem. What do you think the tax system should be in order to have a more efficient and fair allocation?

He said make your own assumptions about parameters and make your resasoning

Answer 1

Lump sum tax is a kind of tax in which the payer of tax is assessed the same amount regardless of the circumstances by the asessee. It is same for everyone . The main feature is that the tax amount is fixed. it is one time tax paid by the producers to government. It thereby increases the firms cost . average total cost etc but will not increases according to the increase in the output. This type of tax is considered to be very efficient in the sence it will not reduce people incentive to work. the administration burden related to the tax is too low. that is government don't need information and details about persons income. The one and only record that should be kept is the proof of whether the tax is paid or not.

  

the income tax is on the other hand , the tax which is imposed by the Government on individuals income and incomes from businesses. the asesse should file a return showing all the details regarding his/her income to find the annual obligation belongs to him. personal income is levied on the Salaries and wages of initials. Even the income of individual make change in overall economic activity. it is regulated within a Progressive rate structure. In every year the liability of taxpayers fluctuates in accordance with their income.

  

Sales tax is tax paid on the basis of the sales of certain goods an services. this tax amount is collected by the seller from certain ultimate buyer of the product and remits to government. retail and conventional sales are charged to the final user of a product. this tax amount is calculated in percentage and added to the value of goods. consumers has to pay local and sales tax together. business entrepreneurs are responsible to collect and track sales tax. the product price usually include the tax amount. A business entrep[rise is liable for sales tax.It is charged to final custoimer. because it is passed thriugh differnt stages. so it will be difficult for collection.

per unit tax is a fixed amount for each and every unit of a good as well as service. It is proportionate to the quantity of good sold. in is shown as a link between demand and supply curves. this is type of tax levied on the producers . it is a time payment done among producers and government. it increases the marginal cost and average variable cost  of firm . thereby firms reduces its output in short run. it has direct effect on cost of production thus supply curve move to left.

If the tax outcome is less than financial structure then the tax is said to be efficient. A mung all the above taxes lump sum is considered to be most efficient. because it is charged irrespective of incomes and thus no complications in tax collection. The second welfare Theorem emphasis in increasing stability of economy by redistributing Endowments. Tax collection is the most appropriate appropriate for redistributing income. Income tax is basically meant for that. This Theorem is considered as fundamental of economics. The income of initials varies from person to person. So it cannot be said that the welfare is attained by the increase of GDP. Thus it is essential to redistribute income by collecting tax and thereby we can attain welfare.